Switzerland has again proven itself as the bedrock for emerging financial trends, especially in blockchain. The Canton of Zurich reached another milestone with its first successful issuance of digital bond that can be settled with Franc digital central bank currency (CBDC).
According to the Crypto Valley Journal, the latest issuance was facilitated over the Swiss National Bank’s (SNB) wholesale CBDC (wCBDC) pilot with cooperation of the SIX Digital Exchange (SDX).
SNB’s pilot operation experiment commenced this month, and joined in by SDX members UBS, Kantonalbank, Basler Kantonalbank, Banque Cantonale Vaudoise, Hypothekarbank Lenzburg, and Commerzbank.
The project is a follow through of a same program conducted in the Basel canton to sustain the development of innovative Swiss financial markets.
The AAA S&P rated digital bond is valued at CHF 100 million with optional increase under a 1.45% coupon. The bond with valor number CH1306117073 will be listed on SDX and SIX by December 1, 2023, and its maturity is on December 1, 2034 with 1.405 yield. The instrument has 100.456% issue price and a mid-swap spread of -3 basis points.
The Private Blockchain of SDX
In 2021, the Swiss Financial Market Supervisory Authority (FINMA) greenlit SDX as custodian and exchange for digital assets. It marked the first endorsement for a distributed ledger technology (DLT) in Switzerland, laying the foundation for trading tokens and settlement.
Unlike public blockchains, the SDX platforms operates privately under a limited or “permissioned” network. Only authorized participants have access to the system, but it also assured that all transactions are held within a regulated environment.
Wholesale Vs Retail CBDC
As the name implies, central bank digital currencies or CBDCs are digital representation of currencies issued and backed by the central bank. This financial instrument promises more efficiency and transparency than a traditional fiat currency.
The caveat, however, is that the issuing authority — the central bank in this case — has programmatic control over it, and this element essentially does not sit well to CBDC critics.
There are also concerns about the potential mismanagement of this system and currency swapping, which could pose fiscal and monetary instability. To address or at least mitigate the mentioned risks, CBDCs have splintered into wholesale and retail versions.
Wholesale CBDCs are exclusive to sanctioned financial institutions and interbank settlements involving large sums. On the other hand, retail CBDCs are of a public scope, catering to small to average daily transactions coming from individuals and businesses.